Glenboden M & A Originations

Molson Coors enters lion's den with StarBev buy

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Origination Status buyer announcement, April 2012
Asset StarBev LP (Czech Republic), leading CEE brewing group
Buyer Molson Coors Brewing Company (USA), top 10 international brewer
Seller CVC Capital Partners Ltd (Holland), private equity group
Buyer Rationale brand porfolio, enhanced scale, growth platform
Seller Rationale attractive valuation
NBs CVC apparently auctioned StarBev after receiving unsolicited offers
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CVC is selling StarBev to Molson Coors, only two years after acquiring it from ABI. Whilst the growth market rationale is understandable, is Molson Coors buying StarBev on the basis of maxed-out financials, and stirring up a competitive tussle with more established majors over the premiumisation story in CEE ?

Foothold in growth markets ...It's significant that a north -America focused corporation like Molson Coors, that you'd normally expect to focus any emerging market acquisition strategy on BRIC countries, has chosen the CEE region instead.

That's symptomatic of how CEE is back in favour with foreign direct investors, on the back of its macro-economy story of growth, higher incomes, undervalued currencies etc.

Nonetheless emerging markets are still only about 10% of Molson Coors' total sales, after acquiring StarBev (see chart). So the group's still far behind other majors in creating a geographically balanced sales reach.

... maxed-out financials ...The deal isn't overvalued (see valuation), considering StarBev has top three market shares, spread across nine CEE countries, and offers greater reach for Molson Coors' international premium brands (now including StarBev's 'Staropramen').

On the other hand, the valuation is based on an EBITDA margin of 35%, booked by StarBev in 2011, which is very high and arguably unsustainable in competitive markets. Under ABI, that margin was only about 25% (H1 2009).

During CVC's ownership, volumes stayed flat at 13,3 mln hl in 2011 (same as in 2009). So increased margins have come from price increases, and limited cost cutting - CVC bought 10 breweries from ABI, and is selling nine to Molson Coors.

... competition may biteThere's a risk that StarBev's margins will fall after this acquisition - it's probable that the brands were underinvested under CVC, and that Molson Coors will have to spend money on the marketing of new 'liquids and packs' etc.

There's also the risk of an intensified competitive environment, now that an innocuous private equity owner has been replaced by a global beer group that might stir the market by cross-selling Carling, Coors and Molson into CEE.

The international premium segment occupied by those brands is where the 'cream' margins are, and where the other majors in the region, notably SABMiller and Heineken, will guard their territory jealously.

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THIS LEAD'S VALUATION
Size (€ mln) 2.650
Sector brewing
Asset Quality CEE regional branded
Seller private equity
Buyer large plc
P/S 3,8
P/Ebitda 11,0
Type purchase price
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